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TMI Blog1994 (7) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... to the directors of the assessee-company should not be excluded ? " The reference applications relate to the assessment years 1967-68 to 1969-70. The assessee-company has several manufacturing activities. The assessee has claimed for the assessment year 1967-68 deduction of Rs. 1,82,469 being eight per cent. on the assessable profits from the dynamo and starter motor factory (priority industry) as worked out at Rs. 22,80,858. In working out the profits, the assessee has not taken into account the proportionate bonus and commission payable to the directors relatable to this factory. After deducting bonus and commission to the directors at Rs. 2,30,020 and depreciation of Rs. 7,931, the net profit arrived at by the Income-tax Officer was Rs. 20,42,907. The Income-tax Officer allowed deduction of Rs. 1,63,432 being eight per cent. on the net profit of Rs. 20,42,907 under section 80E of the Act instead of Rs. 1,82,469 claimed. So also for the assessment year 1968-69, the assessee has claimed deduction under section 80-I of the Act out of the profits derived from the priority industry. The profits from the above-said factory were worked out by the assessee at Rs. 4,44,205. After d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation referable to that undertaking has to be deducted. In that view of the matter, the order passed by the Appellate Assistant Commissioner was modified to that extent. Learned standing counsel for the Revenue submitted as under: The relief is available to the income of a priority industry. There is no distinction for this purpose between the income or profits and gains. Under the Act no such distinction can be made. All the expenses directly relatable to the new industrial undertaking have to be deducted before the income or the profits or gains of that industrial undertaking can be worked out since the relief is not given on receipts, etc. Such income has to be worked out as per section 28 of the Act, which means that proportionate expenses such as bonus, commission, depreciation, etc., have to be allowed. Income, profits and gains which have the same meaning under the Act cannot be said to have different meanings when applied to section 80E of the Act. Learned standing counsel pointed out that the Tribunal was not correct in holding that the profits earned by the new industrial undertaking may not depend entirely on the capital employed, work done or expenditure incurred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking. After the enactment of the Payment of Bonus Act, 1965, bonus paid to an employee is part of his salary or wages. Payment of bonus is no longer considered as a share of profits or gift or bounty given by an employer at his sweet will and pleasure. The employee by reason of his contribution or participation in the business of the employer is considered to be entitled to payment of the same though the exact amount payable depends on various circumstances. (See CIT v. India Radiators Ltd. [1976] 105 ITR 680 (Mad)). So also in Gestetner Duplicators P. Ltd. v. CIT [1979] 117 ITR 1, the Supreme Court held that: "the commission paid by the assessee to its salesmen would clearly fall within the expression 'salary' as defined in rule 2(h) of Part A of the Fourth Schedule to the Act, and, therefore, that would be taxable under section 36(1)(iv) of the Act ". The Supreme Court while considering the provisions of section 80E of the Act in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) held as under (at page 91): " On reading sub-section (1) of section 80E, it will become clear that three important steps are required to be taken before the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f profits and gains from a newly established industrial undertaking are to be allowed. If the deductions permissible, like depreciation or development rebate, have already been adjusted against the profits or income from other business concerns, the said development rebate cannot again be adjusted against the income from the newly established industrial undertaking. According to the facts arising in the aforesaid case, the assessee which owned two flour mills started a cold storage unit in the previous year relevant to the assessment year 1967-68. For the assessment year 1971-72, the total income of the assessee was computed at Rs. 10,60,240 after deduction of development rebate of Rs. 41,174 in respect of the cold storage unit. The profit attributable to the unit was Rs. 47,027, and there was a deficiency for purposes of section 80J of Rs. 1,09,329 for that year. The assessee claimed that the deduction under section 80J should be allowed before considering the deficiency of earlier assessment years. It also contended that since the Income-tax Officer himself, while computing its total income at Rs. 10,60,240, had worked out the gross total income by allowing a deduction of devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income as contemplated under section 80E, sub-section (1) of the Act. Learned counsel for the assessee lastly relied on a decision in the case of CIT v. Balanoor Tea and Rubber Co. Ltd. [1974] 93 ITR 115 (Mys). This decision was considered by the Supreme Court in the decision in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84, wherein the Supreme Court held as under (at page 98): " Reference was also made by counsel for the assessee to the decision of the Mysore High Court in the case of CIT v. Balanoor Tea and Rubber Co. Ltd. [1974] 93 ITR 115. In our view that decision has nothing whatever to do with the question posed before us. In that case the question was whether the loss incurred by an assessee in non-priority business could be set off against the profits and gains made by the assessee in the priority business while computing the eight per cent. deduction under section 80E and the High Court upheld the Tribunal's view that, for the purpose of allowing a deduction under section 80E, the words 'such profits' occurring in that section mean 'the profits and gains attributable to an activity as specified in the Fifth Schedule of the Act' a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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